By Jeff Stricker & Steve TenBroeck
In recent months we have been asked, “What will happen to real estate prices? Is it a good time to buy or move up? Should we wait?” It is an acknowledged fact that real estate prices move in cycles. The last complete market cycle began in 1993 and ended in 2002.
William T. Tappan outlines a complete real estate market cycle in his book, “Real Estate Exchange and Acquisition Techniques” (Prentice Hall 1989).
The four phases of the cycle include:
• Activity Basing: Real estate activity and expectations are low, prices are soft.
• Activity Rising: Demand picks up and begins to absorb supply; construction activity and prices rise.
• Activity Topping: Supply catches up to demand, construction tapers off; outlook is generally optimistic and fear is of missing a profit.
• Activity Falling: Supply exceeds demand; prices stop rising; sellers must give concessions; credit becomes increasingly restrictive; pessimism increases.
A complete cycle in the Bay Area real estate marketplace typically lasts 7 to 10 years. During the cycle, real estate prices typically increase 100 percent, and then fall back 20 percent to 25 percent.
We have entered the “Activity Topping” period locally, which may continue over the next year or two. Price appreciation will begin to flatten. The best properties will attract more attention and higher priced offers, separating them from the pack. By “the best,” we mean those in the best condition, in quiet locations, on low-traffic blocks, and those priced at, under, or very near to, their current market value. As more homes come on the market, homebuyers will have more choices. Buying “the best” home will be more important than buying quickly.
Our advice to sellers: Spend the extra time and money to put your home in its best showing condition. Price it as close to market value as possible. If you anticipate selling in the next 1 to 3 years, stay in close touch with your realtor regarding market changes and prepare to place your home on the market quickly. It typically takes 4 to 7 years for prices to recover once they begin dropping (it took until 1995 to regain 1989 prices, for example).
Our advice to buyers: Purchase the best “blue chip” home you can and lock in today’s low interest rates. Plan to hold it long term (7-10 years). You can expect an outstanding return on your investment, because the local population will continue to increase over the long term and new residential construction is negligible. Unless the laws of supply and demand are miraculously suspended, there will continue to be upward pressure over the long term on local home prices.
Jeff Stricker is a real estate broker and attorney and Steve TenBroeck is a broker and Seniors Real Estate Specialist with Alain Pinel Realtors. For more information, call 209-1552 or visit www.JeffAndSteve.com.
